By Timothy P. Law and Lisa A. Szymanski, Attorneys, Reed Smith LLP
This article discusses various doctrines applied by courts to avoid the technical forfeiture of insurance coverage. These doctrines include waiver, estoppel, "mend the hold," the requirement of prejudice, and the duty of good faith and fair dealing. The primary purpose of insurance is to insure, and that fundamental purpose cannot be undermined by technicalities and traps for the unwary.
In the insurance context, the doctrines of waiver and estoppel, the prejudice requirement, and the "mend the hold" doctrine should be viewed as corollaries of the duty of good faith and fair dealing. Insurance companies owe a duty to investigate and pay covered claims in a timely manner. Forfeiture defenses should be subject to intense scrutiny and permitted only when timely asserted and when forfeiture of coverage is the only way to remedy substantial prejudice to the insurance company that outweighs the prejudice that would result to the policyholder from the forfeiture.
Timothy Law is a partner and Lisa Szymanski is an associate at Reed Smith LLP in Philadelphia, Pennsylvania. Both are members of the firm's Insurance Recovery Practice Group. Mr. Law and Ms. Szymanski represent policyholders in disputes with their insurance companies.
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